U.S. HOUSING MARKET CONDITIONS 4TH QUARTER 1995 MARCH 1996 ------------------------------ SUMMARY The year 1995 was a good year for housing that followed a great year. Except for 1994 more housing units were authorized (1,333,000) and started (1,350,500) than in any other year since 1989. Again, except for 1994, more existing homes (3,812,000) were sold than in any year since 1979. Data for the first 11 months suggest that new home sales in 1995 will fall short of the totals in 1993 and 1994, but still exceed other years since 1989. In some important areas, 1995 surpassed 1994. More multifamily units (243,500) were started than in any year since 1990. In current dollars residential fixed investment reached an all-time high of $295.2 billion. Most significantly, the homeownership rate rose to 64.7 percent, the highest rate since 1982. In fact, in the past two quarters, the homeownership rate exceeded 65 percent, a rate not achieved in any quarter since the fourth quarter of 1981. The influence of interest rates on housing activity was clearly demonstrated in 1995, a year that started slowly but finished strong. Permits, starts, new home sales, and existing home sales were all substantially higher in the last 6 months of the year than in the first 6 months. Interest rates fell throughout the year; by the fourth quarter, rates for 30-year, fixed-rate mortgages were 176 basis points lower than a year earlier. Specific highlights for the fourth quarter are as follows: o Permits rose 4 percent in the fourth quarter compared with the third quarter, while starts fell 1 percent. However, in both cases, the fourth quarter level was significantly higher than the second quarter. o The absorption rate for multifamily units completed in the previous quarter fell from 75 to 72 percent. However, 48,200 units were brought onto the market in the third quarter, substantially more than in any quarter in the past 2 years. o The National Association of Realtors' Affordability Index improved by 5 percent, as interest rates fell, the median income increased slightly, and the median existing home price decreased slightly. As U.S. Housing Market Conditions went to press, the Census Bureau released data on permits and starts for January 1996. Starts increased over December, suggesting that the momentum from the last half of 1995 carried over into 1996. While permits fell, they remained above the 1995 annual level. However, large month-to-month swings in these numbers are not unusual, so monthly results should be read with caution. Further discretion is suggested by the decline in new home sales from July through November. Unfortunately, data on new home sales for December and January will not be available until the middle of March. These numbers bear watching because the inventory of unsold homes now exceeds 7 months. REGIONAL PERSPECTIVE HUD's field economists report that housing-market conditions in the fourth quarter of 1995 continued to show the improvement that started in the previous quarter. Sales of new and existing homes in many areas during the fourth quarter exceeded the fourth quarter of 1994. However, sales levels in most parts of the country finished the year slightly below 1994. Single-family building permits for 1995 declined in every region. The reductions ranged from 14 percent in New York/New Jersey to 1.5 percent in the Rocky Mountains. Residential construction and sales activity remained strong in Georgia, Texas, Arizona, Nevada, and Oregon. In the Mid-Atlantic region, the drop in single-family activity reflected a much lower sales volume in 1995 and increased inventories of new homes in the middle and upper price ranges, particularly in the Philadelphia and Washington-Baltimore areas. The sales markets in the Southeast and Southwest continued to be very active. Home sales in the Midwest ended the year only 4 percent below a very strong 1994. Median sales prices increased by nearly 10 percent in the Rocky Mountain markets of Salt Lake City, Denver, and Colorado Springs. The slight drop in existing home sales in Arizona was caused by a shortage of listings, as demand remains strong. Home sales activity in Oregon continued strong, especially in Portland and Eugene. Apartment construction remained on the upswing in much of the Nation, with 31 States reporting an increase in the number of multifamily units permitted in 1995. Nearly 8,800 apartment units are in the planning stages in the Washington, D.C., metropolitan area. Activity continued strong in the Rocky Mountain, Southeast, and Southwest regions where the number of multifamily units permitted was up 27, 21, and 5 percent, respectively. When the large inventory under construction comes on the market, more competitive conditions are expected in a number of markets in these two regions. Midwest rental markets remain solid. Multifamily units permitted in the region were up 8 percent over 1994, to the highest level in the past 6 years. The initial surge of apartment construction in the Rocky Mountain region that began in late 1994 is now coming on the market. While absorption remains strong, preleasing has slowed and rent concessions are beginning to appear. Multifamily units permitted were up substantially over 1994 in both Arizona and Nevada. Las Vegas and Phoenix have absorbed high levels of apartment construction with little problem to date. In the Northwest multifamily permit activity was slightly over 1994, and rental markets remain very tight in much of Oregon. ------------------------------ MEASURING THE PERFORMANCE OF OUR CITIES1 For the past 35 years, large American cities have decentralized, losing both population and employment, while their surrounding metropolitan areas have gained people and jobs. The country has become increasingly urban in character while, at the same time, the proportion of people and jobs in large cities has declined. For example, the 94 largest central cities in the United States in 1990 contained about 20 percent of the total U.S. population. In 1960 these 94 cities comprised more than 26 percent of the total U.S. population. More than 16 percent of the U.S. population lived in the 25 largest cities in 1960, while only about 12 percent lived in these same cities in 1990. From 1960 to 1990, the United States experienced a 65-percent growth in jobs, while the top 25 cities saw only a 14-percent growth in employment. Although the trend is clear, fluctuations around it are often both substantial and difficult to explain. Some cities have flourished, doing much better than the trend, while others have grappled with shrinking population and employment and increasing crime, poverty, and racial polarization. At one time a city may be doing well compared with other large cities. At a different time, that same city may be losing population and employment at a rate that is faster than the trend for large cities. Where and why have some cities performed well and others languished? This article will attempt to answer this question by examining the performance of various cities in different regions of the United States. The article draws upon a new data set prepared for the U.S. Department of Housing and Urban Development (HUD) by the Center for Urban Policy Research (CUPR). CUPR amassed approximately 1,400 variables to depict the economic and social conditions in America's cities in 1980 and 1990, documenting fluctuations around the long-run urban trend. The comprehensive array of variables is divided into six categories: employment and economic development; demographic factors; housing and land use; poverty and income distribution; fiscal conditions and the public sector; and social, environmental, health, and other factors. The exhaustive list of variables helps to measure cities' performance along any number of dimensions, such as health, poverty, crime, unemployment, education, and racial integration. One innovative feature of the data set is that for most variables it provides measures for central cities and for either their surrounding suburbs or the entire metropolitan area. This feature will help researchers at HUD, CUPR, and elsewhere to compare the performance of central cities with that of their surrounding areas. Important insights can be gleaned from such comparisons. For example, one can begin to infer reasons for the disparities between a city and its suburbs by comparing a suburb that is doing well with a neighboring central city that is deteriorating. A second innovation of the database is an index of dissimilarity -- a barometer of racial segregation -- that measures the proportion of a metropolitan area's residents that must move to achieve perfect racial integration. This article is divided into five sections. The first section describes cities within their regional context. The second section focuses on decentralization patterns, including the "Edge City." The third, fourth, and fifth sections discuss urban trends, the distributional effects of these trends among cities, and the recent performance of cities in general. CITIES WITHIN THEIR REGIONAL CONTEXT From 1980 to 1990, the Northeast and Midwest regions -- the Frostbelt -- were population and employment losers relative to the rest of the country. Midwestern cities lost 4.2 percent of their population during the decade, while the population in Northeastern cities grew by only 0.4 percent. In both regions suburban employment growth was more than 50 percent greater than in the cities. Cities in the Northeast and Midwest also suffered severe population and employment losses. Pittsburgh lost 12.8 percent of its population and 9.7 percent of central-city jobs. Detroit's population and central-city employment shrunk by 14.6 percent and 15 percent, respectively. Other Frostbelt cities, such as Buffalo; Newark, New Jersey; Chicago; Cincinnati; Kansas City, Missouri; and St. Louis, suffered significant losses in population and/or central-city employment. On the other hand, the South and West regions -- the Sunbelt --performed very well. The population of the average city in the South and West grew by 6.1 percent and 18.6 percent, respectively. Average city employment rose by even more: 9.3 percent for the South and 58.1 percent for the West. The Sunbelt cities also fared far better than their frozen counterparts. Five Texas cities saw their population and central-city employment increase by 10 percent or more: Austin (34.7-percent increase in population, 39.9-percent increase in central-city employment); Dallas (11.4 percent, 10.0 percent); El Paso (21.2 percent, 26.8 percent); Fort Worth (16.2 percent, 15.2 percent); and San Antonio (19.1 percent, 27.4 percent). Other cities with double-digit growth in both categories include: Charlotte, Jacksonville, Virginia Beach, Anchorage, Boise, Fresno, Sacramento, San Diego, Las Vegas, Phoenix, and Tucson. Regional characteristics, such as cheap labor in the South, inexpensive energy in the Southwest, and desirable climates in both the South and West, have contributed to the recent prosperity of cities in these areas. Certain cities have flourished in declining regions, just as others have declined in prosperous regions. Despite being in the Northeast, Boston's population and central-city employment grew by 2 percent and 12.8 percent, respectively, from 1980 to 1990. New Orleans lost nearly 11 percent of its population and 15 percent of its central-city jobs, notwithstanding its southern location. Boston was certainly helped by the development of high-technology industries in and around the city, particularly along Route 128. New Orleans, on the other hand, never recovered from the oil-based recession of the 1970s. It failed to develop a replacement engine to drive economic growth and encourage people to remain in or relocate to the area. PATTERNS OF URBAN DECENTRALIZATION Prior to World War II, and for nearly three decades thereafter, U.S. industry enjoyed an insular domestic market and dominance abroad. However, foreign industrial competition grew increasingly stiff during the 1970s. The automobile industry is a perfect illustration. Abetted by the OPEC oil shocks, foreign automakers were able to sell their cheaper, more reliable, and more fuel-efficient vehicles to American consumers. By the 1990s, one of every four vehicles in the United States was produced abroad. Foreign manufacturers made similar inroads in the steel, textiles, and consumer electronics industries. To meet the decreased demand for domestic products, American firms downsized their domestic operations, displacing hundreds of thousands of workers. Many of the losses in American manufacturing are attributable to the cost advantage of foreign producers by the ready supply of cheaper, nonunionized, low- or semiskilled labor. In their efforts to be more cost competitive, domestic producers have begun to build plants or subcontract manufacturing overseas, exacerbating the loss of less skilled jobs in the United States, particularly in its cities. Manufacturing jobs have decentralized, moving out of central cities. Services, which by their nature cannot be imported, and high-skilled professional jobs, in which the United States has a comparative advantage, have moved in. Services and high-skilled, high-technology jobs have also grown in the suburbs, far removed from the cities that experienced the greatest manufacturing job losses. As jobs and population left the central city, retailers followed, filling shopping malls and creating "Edge Cities" -- highly developed retailing centers located far from traditional downtown areas. With merchandise and other urban amenities now closer to where they live, suburban shoppers abandoned many centrally located stores. Inevitably, urban retailers either curtailed their operations or went out of business, further depleting the withering urban job base. REASONS FOR OBSERVED STRUCTURAL CHANGES Residential suburbanization has been an ongoing process in the United States since World War II. Indeed, there is a "natural evolution theory" of suburbanization, which postulates: As incomes grow, people will be willing to spend more on spacious homes, larger yards, and the concomitant higher commuting costs. So, over time, one would expect to observe larger numbers of people residing in suburbia, independent of other socioeconomic phenomena. There is presently a debate in the literature as to whether urban problems (such as crime and poverty) have accelerated the rate of suburbanization, but the evidence is far from conclusive. The only certainty is that the United States is becoming increasingly suburban and has been moving in that direction for decades. Manufacturing and service jobs have also been moving to the suburbs over the past 25 years. As discussed above, a major reason is the availability of skilled labor: As well-trained workers increasingly reside in the suburbs, businesses have located their operations there. In addition, suburban land is often cheaper, regulations are less strict, and transportation is less costly and time consuming. Another advantage is that firms that locate in the suburbs risk no potential environmental liability left by a previous polluter. Global factor-price equalization is the cause of many of the job losses in Northern and Midwestern cities. In other words, American manufacturers cannot pay real wages substantially greater than those being paid by foreign firms and remain price competitive. One wage-reducing response to foreign competition is to relocate production to lower wage/less unionized areas. Domestically, this has been accomplished by the movement of manufacturing facilities, particularly to the sparsely unionized South. Internationally, producers have moved their production to low-wage countries. Both Ford and General Motors, for example, now have plants in Mexico. Labor-saving technological change is yet another way that firms can reduce labor demand and labor costs. Both increases in worker productivity and automation -- the outright replacement of human workers with machines -- have been successfully introduced. For its most routine tasks, such as spot-welding chassis assemblies, the auto industry now uses robots. In banking the automated teller machine has assumed the most routine tasks that bank tellers used to perform. In short, low- and semiskilled labor is increasingly being replaced by lower cost machinery in both manufacturing and services. DISTRIBUTIONAL EFFECTS OF STRUCTURAL CHANGES Foreign competition and labor-saving technological change have combined to slow the demand for labor and with it, the growth in real wages. Real average hourly earnings exhibited no significant growth from 1966 to 1994. In fact, measured in constant 1982 dollars, the $7.52 average hourly wage of 1966 is slightly higher than its $7.42 counterpart of 1995.2 For urban workers who depend on hourly wage jobs for a living, they have not increased their earning power. Measured in 1994 dollars, real median family income, which now incorporates more two-earner families, has shown little increase, growing only slightly from $37,319 in 1976 to $38,782 in 1994.3 These figures conceal a stunning redistribution of income between skill categories and income classes. As unskilled labor saw its earnings decline, skilled workers reaped large increases. From 1975 to 1992, nominal average earnings doubled for high school dropouts, rose 2.5 times for high school graduates, nearly tripled for holders of bachelor's degrees, and tripled for holders of advanced degrees. During the same period, the consumer price index increased 2.5 times, meaning only those with college degrees and beyond increased their real earnings. In 1992 the holder of a bachelor's degree earned an average annual wage of $32,269, 72 percent more than a high school graduate. Over a worklife the annual difference translates to $600,000 more for a college graduate (for example, $1.421 million vs. $821,000). According to income categories, between 1979 and 1989, the average real incomes of families in the lowest quintile fell by 2.1 percent, while the incomes of families in the top quintile rose by 13.9 percent. The redistribution of income away from those with less education and wealth has exacerbated urban poverty. American cities harbor a disproportionate share of the Nation's poor and poorly educated citizens. Therefore, when earnings of the poor and undereducated slip, cities bear the brunt. A comparison of the proportions of city and suburban populations in poverty confirms this fact. In 1990 in the Northeast, 19.9 percent of the average city's population lived in poverty. The average city in the Midwest, South, and West had 20.8 percent, 19.7 percent, and 15.6 percent, respectively, of its population living in poverty. The corresponding numbers for each region's suburbs were: 6.8 percent for the Northeast, 6.3 percent for the Midwest, 9.3 percent for the South, and 9.3 percent for the West. While well-paying manufacturing jobs have disappeared from cities, affordable housing remains concentrated in older urban cores. The location of affordable housing away from centers of suburban job growth has trapped the poor and minorities in central cities, removed from economic opportunity. These trends have also fostered income and racial polarization: Middle and upper income Americans work and reside in suburbia, while a predominantly African-American and Hispanic underclass crowds the inner city. According to the 1990 Index of Dissimilarity calculated in HUD's new data set, for the average large metropolis of the Northeast and the Midwest, two-thirds of the population would have to be moved to achieve perfect racial integration, 73.4 percent and 69 percent, respectively. For the South 64.4 percent and for the West 50.3 percent of the population would have to move to achieve racial integration. More importantly, for the Northeast and the Midwest, the percentages for 1990 exceeded their 1970 counterparts, confirming an increase in racial polarization. SUMMARY Large cities as a group continue a longrun trend of relative population and employment loss. As population and employment centers, large cities are less dominant than they were in the 1950s and 1960s. While decentralization is the overall trend, the performance of individual cities fluctuates around the trend line. The CUPR data set highlights the movements for individual large cities. As the data suggest, poverty, unemployment, and isolation are huge problems for many American cities, particularly those in the Northeast and Midwest. At the same time, some cities are much healthier, both economically and socially; the majority of these cities are in the South and West. NOTES 1 This article is based on research done for HUD by the Center for Urban Policy Research, Rutgers University. The full report, entitled The State of the Nation's Cities: America's Changing Urban Life, by Norman J. Glickman, Michael L. Lahr, and Elvin K. Wyly, will be available from HUD in Spring 1996. 2 See 1995 Economic Report of the President. 3 See 1995 Economic Report of the President. ------------------------------- NATIONAL DATA ------------------------------ HOUSING PRODUCTION PERMITS Permits for the construction of new housing units rose 4 percent in the fourth quarter of 1995 to a seasonally adjusted annual rate (SAAR) of 1,437,000 units, 3 percent lower than in the fourth quarter of 1994. The January 1996 level is 1,373,000 (SAAR) and the annual estimate for 1995 is 1,333,000 units, 3 percent below the 1994 annual estimate. One-unit permits, at 1,077,000 units, were up 3 percent from the previous quarter and up 2 percent from a year earlier. The January 1996 estimate is 1,045,000 units (SAAR) and the annual estimate for 1995 is 999,100 units, 6 percent below the 1994 annual estimate. Multifamily permits (5 or more units in structure), at 292,000 units, were 9 percent above both the third quarter and the same quarter the previous year. The 1995 annual estimate is 268,600 units, 11 percent above the 1994 annual estimate. The January 1996 estimate is 259,000 (SAAR), 15 percent below the December 1995 estimate. STARTS Construction starts of new housing units in the fourth quarter of 1995 totalled 1,398,000 units at a seasonally adjusted annual rate (SAAR), a statistically insignificant 1 percent below the third quarter of 1995 and 7 percent lower than the fourth quarter last year. The January 1996 estimate is 1,446,000 units (SAAR) and the 1995 annual estimate is 1,350,500, 7 percent below the 1994 annual estimate. Single-family starts, at 1,118,000 units, were a statistically insignificant 1 percent lower than the previous quarter and 7 percent below the year-earlier rate. The January 1996 estimate is 1,132,000 units (SAAR) and the 1995 annual estimate is 1,073,200 units, 10 percent below the 1994 annual estimate. Multifamily starts totalled 249,000 units, a statistically insignificant 1 percent below the previous quarter and 6 percent below the same quarter last year. The January 1996 estimate is 283,000 units (SAAR) and the 1995 annual estimate is 243,500 units, 9 percent above the 1994 annual estimate. UNDER CONSTRUCTION Housing units under construction at the end of November 1995 stood at 795,000 units on a seasonally adjusted annual basis, 2 percent higher than at the end of the previous quarter and 1 percent above the final quarter of 1994. (Both of these changes are statistically insignificant.) Single-family units under construction, at 566,000, were a statistically insignificant 2 percent above the end of the previous quarter and 3 percent below the 1994 year-end level. Multifamily units, at 207,000, were nearly the same as the previous quarter and 13 percent above the fourth quarter last year. COMPLETIONS Housing units completed in the fourth quarter of 1995, at a seasonally adjusted annual rate of 1,325,000 units, were 3 percent above the previous quarter, but 4 percent below the same quarter last year. (Note: The quarterly value is based on data for October and November only.) (Both changes are statistically insignificant.) Single-family completions, at 1,038,000 units, were 2 percent above the previous quarter and 11 percent below the year-earlier rate. Multifamily completions, at 252,000 units, were 8 percent above the previous quarter and 34 percent above the same quarter last year. MANUFACTURED (MOBILE) HOME SHIPMENTS Shipments of new manufactured (mobile) homes to dealers were at a seasonally adjusted annual rate of 334,000 units in the third quarter of 1995, 3 percent above the previous quarter and 12 percent over the rate a year earlier. ------------------------------ HOUSING MARKETING HOME SALES Sales of new single-family homes totalled 666,000 units at a seasonally adjusted annual rate (SAAR) in October and November of 1995, 9 percent below the previous quarter and about the same as in the fourth quarter of 1994. The number of new homes for sale at the end of November 1995 numbered 375,000 units, up 7 percent from the last quarter and 11 percent over the final quarter last year. At the end of November, inventories represented a 7.2 months' supply at the current sales rates, 12 percent above the end of the previous quarter and 9 percent above the final quarter of the previous year. Sales of existing single-family homes reported by the NATIONAL ASSOCIATION OF REALTORS for the fourth quarter of 1995 totalled 4,020,000 (SAAR), down 2 percent from the third quarter's level, but 7 percent above the fourth quarter of 1994. The number of units for sale at the end of the fourth quarter fell to 1,450,000, 19 percent below the previous quarter, but 5 percent above the fourth quarter of 1994. At the end of the fourth quarter, there was a 4.5 months' supply of units, 13 percent below the previous quarter and 5 percent above the fourth quarter of 1994. HOME PRICES Release of data on prices of new homes sold during the fourth quarter of 1995 is delayed until mid-March due to the partial shutdown of the Federal Government. The median price of existing single-family homes in the fourth quarter of 1995 was $113,800, 2 percent below the third quarter and 5 percent above the fourth quarter of 1994, according to the NATIONAL ASSOCIATION OF REALTORS. The average price of $139,000 was 2 percent below the third quarter and 4 percent above the fourth quarter of 1994. HOUSING AFFORDABILITY Housing affordability is the ratio of median family income to the income needed to purchase the median-priced home based on current interest rates and underwriting standards, expressed as an index. The NATIONAL ASSOCIATION OF REALTORS composite index value for the fourth quarter of 1995 showed that the family earning the median income had 129.3 percent of the income needed to purchase the median-priced existing home. This figure is 5 percent above the third quarter of 1995 and 2 percent above the fourth quarter of 1994. This increase is the result of a 2-percent decrease in the median home price used in the series, a 20-basis-point interest rate drop, and a 1-percent rise in median family income during the last quarter. The fixed-rate index improved from both the third quarter of 1995 and the fourth quarter of 1994. The adjustable-rate index rose by 6 percent from the previous quarter, but fell by 1 percent from the rate a year ago. APARTMENT ABSORPTIONS There were 48,200 new, unsubsidized, unfurnished, multifamily (5 or more units in structure) rental apartments completed in the third quarter of 1995, up 34 percent from the previous quarter and up 63 percent from the third quarter of 1994. Of the apartments completed in the third quarter of 1995, 72 percent were rented within 3 months (the absorption rate). This absorption rate was a statistically insignificant 4 percent below the previous quarter and 12 percent below the same quarter last year. The median asking rent for apartments completed in the third quarter was $665, about the same as the previous quarter and 12 percent higher than a year earlier. MANUFACTURED (MOBILE) HOME PLACEMENTS Homes placed on site ready for occupancy in the third quarter of 1995 totalled 294,000 at a seasonally adjusted annual rate, up 1 percent from the previous quarter and up 5 percent from the third quarter of 1994. The number of homes for sale on dealers' lots at the end of the third quarter totalled 95,000 units, 13 percent above the previous quarter and 30 percent above the same quarter the previous year. The average sales price of the units sold in the third quarter was $36,570, up 4 percent from the previous quarter and 9 percent higher than the year-earlier price. BUILDERS' VIEWS OF HOUSING MARKET ACTIVITY The National Association of Home Builders (NAHB) conducts a monthly survey focusing on builders' views of the level of sales activity and their expectations for the near future. NAHB uses these survey responses to construct indices of housing market activity. (The index values range from 0 to 100.) The fourth-quarter value for the index of current market activity for single-family detached houses stood at 56, up 2 points from the third-quarter level of 54 and up 4 points from last year's fourth quarter. The index for future sales expectations, 62, was the same as the third-quarter value and up 9 points from last year's level. Prospective buyer traffic had an index value of 42, the same as the third-quarter value, but 7 points above last year's level. NAHB combines these separate indices into a single housing market index that mirrors the three components quite closely; in the fourth quarter, this index stood at 53, nearly identical to the third-quarter level, but up 7 points from last year. ------------------------------ HOUSING FINANCE MORTGAGE INTEREST RATES Mortgage interest rates for all categories of loans fell from thelast quarter, as they did from last year. The contract mortgage interest rate for 30-year, fixed-rate, conventional mortgages reported by Freddie Mac was 7.34 percent in the fourth quarter, 34 basis points lower than the previous quarter and 76 basis points lower than the same quarter last year. Adjustable-rate mortgages in the fourth quarter were going for 5.65 percent, 20 basis points below the previous quarter and 53 basis points below the same quarter last year. Fixed-rate, 15-year mortgages, at 6.87 percent, were down 32 basis points from last quarter and 174 basis points from the same quarter last year. The FHA rate fell 33 basis points during the quarter and 150 basis points from the same quarter last year. FHA 1-4 FAMILY MORTGAGE INSURANCE Applications for FHA mortgage insurance on 1-4 family homes were received for 215,000 (not seasonally adjusted) properties in the fourth quarter of 1995, down 15 percent from the previous quarter, but up 54 percent from the fourth quarter of 1994. Endorsements or insurance policies issued totalled 150,500, down 5 percent from the third quarter of 1995 and down 11 percent from the fourth quarter of 1994. Endorsements for refinancing moved up to 18,600, up 36 percent from the third quarter of 1995, but down 36 percent from a year earlier. PMI AND VA ACTIVITY Private mortgage insurers issued 268,800 policies or certificates of insurance on conventional mortgage loans during the fourth quarter of 1995, down 6 percent from the third quarter, but up 11 percent from the fourth quarter of 1994; these numbers are not seasonally adjusted. The U.S. Department of Veterans Affairs reported the issuance of mortgage loan guaranties for 63,100 single-family properties in the fourth quarter of 1995, down 4 percent from the previous quarter and down 23 percent from the final quarter of 1994. MORTGAGE ORIGINATIONS BY LOAN TYPE, 1-4 FAMILY UNITS The total value of mortgage originations for 1-4 family homes was $187 billion in the third quarter of 1995, up 33 percent from the second quarter of 1995. This 33-percent increase was shared by all four types of loans: Privately insured mortgages increased by 34 percent over the previous quarter, while uninsured mortgages rose by 33 percent. FHA-insured mortgages expanded in volume by 30 percent, while VA-guarantied mortgages rose by 34 percent. The changes from the third quarter of 1994 are mixed. Although the overall increase was 19 percent, both FHA and VA mortgages fell by about 40 percent. Uninsured mortgages increased by 47 percent, while privately insured mortgages rose by a modest 2 percent. Market shares changed very little during the third quarter of 1995, although the market share of uninsured mortgages increased by 24 percent from the previous year, mainly at the expense of FHA and VA mortgages. RESIDENTIAL MORTGAGE ORIGINATIONS BY BUILDING TYPE Residential mortgage originations totalled $196.6 billion in the third quarter of 1995, up 32 percent from the second quarter and up 19 percent from the third quarter of 1994. A nearly identical pattern exists for single-family mortgages. The financing volume for multifamily units (5+) totalled $9.6 billion in the third quarter, up 13 percent from the previous quarter and up 25 percent from the third quarter of 1994. MORTGAGE ORIGINATIONS BY LENDER TYPE, 1-4 FAMILY UNITS Mortgage companies increased their volume during the third quarter to $105.3 billion, a 31-percent increase from the second quarter of 1995 and a 35-percent gain from the third quarter of 1994. Even with this increased volume, their market share fell slightly, although they continue to dominate the market with a 56.3-percent share. Commercial banks increased their volume to $45.0 billion in the third quarter, 42 percent ahead of the second quarter of 1995 and 8 percent ahead of the third quarter of 1994, thus expanding their share to 24.1 percent of the market. Savings and loan institutions made $27.4 billion in loans, up 23 percent for the quarter. Mutual savings banks wrote $7.7 billion in loans, a 67-percent increase from the previous quarter, although their market share was only 4.1 percent. DELINQUENCIES AND FORECLOSURES Total delinquencies were at 4.24 percent at the end of the third quarter of 1995, up 2 percent from the second quarter and up 8 percent from the third quarter of 1994. Ninety-day delinquencies were at 0.74 percent, down 4 percent from the second quarter, but unchanged from the 1994 third-quarter level. During the third quarter of 1995, 0.29 percent of loans entered foreclosure, down 12 percent from the previous quarter and down 15 percent from the third quarter of 1994. ------------------------------ HOUSING INVESTMENT RESIDENTIAL FIXED INVESTMENT AND GROSS DOMESTIC PRODUCT Residential Fixed Investment (RFI) for the fourth quarter of 1995 was $295.2 billion, up 2 percent from both the third quarter of 1995 and the fourth quarter of 1994. As a percent of the Gross Domestic Product, RFI was 4.0 percent, the same as last quarter, but down from 4.2 percent in the fourth quarter of 1994. ------------------------------ HOUSING INVENTORY HOUSING STOCK The estimate of the total housing stock as of the fourth quarter of 1995, 112,987,000 units, was 0.4 percent above the third quarter of 1995 and 1.1 percent above last year. The number of occupied units followed a similar pattern. Owners showed a 0.7-percent increase over the third quarter and a 2.2-percent increase from the fourth quarter of 1994. Renters showed a slight increase from last quarter, but a 1.8-percent decline from last year. Vacant units fell slightly during the last quarter but were 3.4 percent above the previous year. VACANCY RATES The national rental vacancy rate in the fourth quarter of 1995, at 7.7 percent, was unchanged from the third quarter, but was up a statistically insignificant 4 percent from last year. The homeowner vacancy rate, at 1.6 percent, was up 7 percent from the previous quarter and unchanged from last year. HOMEOWNERSHIP RATES The national homeownership rate was 65.1 percent in the fourth quarter of 1995, up 0.1 percentage points from the third quarter and 0.9 percentage points from the fourth quarter of 1994. This is the highest quarterly homeownership rate since the last quarter of 1981, 14 years ago. The homeownership rate for minority households increased to 44.3 percent and the rate for young households remained at 57.9 percent. ------------------------------ REGIONAL ACTIVITY The following summaries of housing market conditions and activities have been prepared by economists in the U.S. Department of Housing and Urban Development's (HUD's) field offices. The reports provide overviews of economic and housing market trends. Each regional report also includes a profile of a selected housing market that provides a perspective of current economic conditions and their impact on the local housing market. The reports are based on information obtained by HUD economists from State and local governments, housing industry sources, and from their ongoing investigations of housing market conditions carried out in connection with the review of HUD program applications. ------------------------------ NEW ENGLAND Employment gains in New England were mixed in 1995. Through November compared with the same period of the previous year, the change in employment ranged from a substantial increase in Maine to a decline in Rhode Island. Maine's growth is attributed to gains in business and health services. The unemployment rate for New England in November was below the national average of 5.6 percent in four of the six New England States. New Hampshire's unemployment rate in November (3.2 percent) was the lowest in New England, as gains in construction and services employment continued. In Massachusetts the biotechnology industry began to show signs of recovery during the fourth quarter of 1995. There are 160 biotech companies in Massachusetts, most of which employ 75 or fewer persons. Statewide, the industry employs about 16,000 workers and is expected to add 2,000 jobs during 1996. Recent experiments in new product development and key pharmaceutical partnership formations are generating jobs in biotechnology manufacturing and marketing. Boston-area hotels reached record occupancy levels during 1995. Occupancy approached 78 percent, up from 76 percent in 1994, and industry analysts are projecting a further 1-percent increase in 1996. Employment in the services sector increased 2.3 percent during the past year, due to the increases in the hotel and tourism industries. The commercial real estate market, however, has remained flat throughout New England. Declines are still being felt in Hartford because of mergers and downsizing in the insurance sector. Residential building activity declined in 1995. Permits were issued for a total of 38,430 units, down from 41,735 units in 1994. In Massachusetts 14,443 single-family units were permitted in 1995 compared with 16,533 units in 1994. In Connecticut single-family permits were issued for 7,579 units, a decrease of 6.5 percent from a year ago. Regionwide, multifamily permits were issued for 4,119 units in 1995, down 3.6 percent from 1994. Multifamily permits increased in Maine, Massachusetts, and Rhode Island. Declines were registered in Connecticut, New Hampshire, and Vermont. As of the end of 1995, the volume of existing home sales in the Northeast was down slightly (2.5 percent) from 1994 levels. One bright spot was Connecticut where sales for the year were up almost 4 percent over 1994. Sales prices in the Boston, Hartford, and Providence areas remained relatively unchanged in 1995 compared with 1994. Rental housing markets in New England are in good condition in most areas. Boston continues to experience a strong rental market due to the increased demand from an improving economy and pressure from growing student enrollments at local universities. Rental vacancies in and around the city of Boston are in the 1- to 3-percent range. The Worcester area is showing improvement, with vacancy rates in the 6- to 8-percent range, down from 10 percent in the early 1990s. Rental vacancy rates also are declining in the major markets in Maine, New Hampshire, and Vermont, where there has been almost a total lack of rental housing production. SPOTLIGHT ON DANBURY, CONNECTICUT The Danbury metropolitan area, adjacent to Westchester County, New York, is one of the few Connecticut market areas that has produced new jobs, higher wages, and lower unemployment over the past year. Average manufacturing weekly earnings and hours worked were the highest in the State, increasing 7 percent and 3 percent, respectively, from a year ago. As of November 1995, the unemployment rate was 3.1 percent, the lowest in the State. Sales housing market activity has been relatively stable in recent years. With about 3,200 single-family sales in the Fairfield County part of the metropolitan area in 1995, sales were down only about 4 percent from 1994 levels. The median sales prices for single-family and condominium properties in 1995 were $209,000 and $111,000, respectively. Single-family home prices did not change, but prices of condominiums declined about 6 percent from the previous year. Since bottoming out in 1991 at about 500 units (from a peak of almost 2,300 units in 1985), residential construction activity increased about 20 percent annually to 900 units in 1994. In 1995 about 800 units were authorized, an 11-percent decline. Single-family homes account for more than 93 percent of residential construction, half of which is in the suburban communities of Ridgefield and Newtown. The rental market in the Danbury area is stable. According to local sources, the rental vacancy rate is below 5 percent. Vacancy rates in the older inventory are somewhat higher; however, well-managed developments in good locations have vacancy rates that amount to no more than normal turnover. The stability of the rental market is due to the fact that Danbury did not become as overbuilt as other Connecticut market areas during the 1980s. Rents in the Danbury area are high, typically more than $1,000 for a two-bedroom unit, and the past couple of years have seen modest rent increases. Population growth (especially in-migration), the strong employment base, and the prime location relative to the New York City and Stamford-Norwalk areas will continue to support Danbury's real estate market. ------------------------------ NEW YORK/NEW JERSEY Job growth in New York and New Jersey continues to lag behind the Nation as a whole. New Jersey experienced a significant setback in the last quarter of 1995. As of December 1995, the unemployment rate had risen to 7.3 percent, due to the loss of 73,000 jobs in November. The losses are primarily the impact of continued corporate downsizing. In New York State, seasonally adjusted employment as of December was 7.9 million, virtually unchanged from December 1994. Wage and salary employment in New York City in November 1995 alsowas little changed, at 3.4 million. The unemployment rate, however, was up to 8.1 percent from 6.6 percent a year earlier. One business that had a good year in 1995 was the hotel industry. Data from PKF Consulting indicate that hotel occupancy in Manhattan during the first half of 1995 was up 2.5 percentage points to 74.8 percent. A gradual recovery continues in commercial real estate in the New York City metropolitan area. Over the past year, office vacancy rates have declined by 1 to 2 percent and rents have stabilized. In midtown Manhattan asking rents are approximately $35 a square foot in a market with a 12.5-percent vacancy rate. In downtown Manhattan the vacancy rate is 15.6 percent and asking rents are 10 percent lower than in midtown. Several conversions of older office buildings to residential or mixed use have been announced recently. In Westchester County the vacancy rate is 17.5 percent, with asking rents of close to $24 a square foot. In Northern New Jersey and Long Island, asking rents are about $18 a square foot, and both areas have had favorable absorptions in 1995. In New Jersey building permits were issued for 21,549 units in 1995 (18,374 single-family and 3,175 multifamily). This figure represents a 15-percent reduction from the 25,388 units permitted in 1994. New York State had 28,033 total units permitted for 1995, a 10-percent decrease from 1994. Sales of existing homes in 1995 in New York State were down about 3 percent compared with 1994. In upstate New York, sales were down substantially. The largest declines occurred in the Albany, Buffalo, and Syracuse areas. In New Jersey home sales were down 5 percent compared with 1994 levels. SPOTLIGHT ON ELMIRA-CORNING, NEW YORK The Elmira-Corning metropolitan area includes Chemung and Steuben Counties, which are located just north of the Pennsylvania border. Corning, Inc., is a major employer in the area. The July 1994 population of the Elmira-Corning area was 195,000, down slightly from the 1990 population of 195,600. Annual average 1995 nonagricultural employment in the area was 80,600, an increase of about 1 percent from the previous year. The local economy is highly dependent on manufacturing. Major employers in the Elmira area include Toshiba, makers of television cathode-ray tubes; Hardinge Brothers, producers of precision machine tools; Arnot-Ogden and St. Joseph's hospitals; and Elmira College. The largest employers in the Corning area are Corning, Inc.; Dresser-Rand Corporation, manufacturers of air compressors; Phillips Lighting; Gunlocke; and the Veterans Administration Hospital in Bath, New York. Corning, Inc., is the biggest employer, with almost 6,000 employees. Corning is involved in a corporate restructuring, but so far there have been no significant employment reductions. The company remains a major influence in the area in terms of employment and tourism due to its Corning Museum of Glass. The Elmira-Corning area remains one of the most affordable housing markets in upstate New York. The median sales price of an existing single-family home in 1995 was $65,000, virtually the same as the median price in 1994. According to data from the New York State Association of Realtors, sales of existing homes in the Elmira-Corning market averaged approximately 1,000 annually from 1990 to 1993. Slowed employment growth in the past 2 years, however, has led to a lower volume of sales and longer periods of time required to sell houses. Single-family home construction in the market area averages 200 to 300 units annually. Construction is concentrated in the suburban towns of Big Flats and Horseheads near Elmira and the towns of Corning, Erwin, and Painted Post Village in Steuben County. The more expensive new homes are located in several small subdivisions in a corridor that extends west along Route 17 from Elmira to Corning. Homes in these subdivisions range in price from $130,000 to more than $200,000. Rental housing consists primarily of older, large homes that have been converted to rental use and small multifamily apartment projects that are 10 to 20 years old. In the city of Elmira, the rental housing market is soft and owners are offering incentives. The rental market in the remainder of the area is relatively balanced. ------------------------------ MID-ATLANTIC The Mid-Atlantic continued to lag behind the national economy at the end of 1995 due to bad weather conditions, Federal worker furloughs, manufacturing job losses, and military base closures. By the end of the year, the Maryland economy was stalled at 1994 levels, and Pennsylvania reported only nominal employment gains. Both West Virginia and Virginia posted more substantial growth in 1995, but Virginia's rate of job expansion slowed considerably. November unemployment rates were below the national average in Virginia (4.2 percent) and Maryland (4.9 percent), but were above the national rate in Pennsylvania (6.3 percent) and West Virginia (7.7 percent). In Virginia employment grew by 78,000 (2.6 percent) in the first 11 months of 1995. Three of every four jobs added were in services, with more than half of these in higher paying business, engineering, and management services. The expansion of the services sector throughout the region has been a major factor in the absorption of excess office space in the Washington, D.C.; Pittsburgh; Baltimore; Richmond; Hampton Roads; and Philadelphia areas. All areas reported the lowest office vacancies in the past 6 years in both downtown and suburban submarkets. Rents in some suburban office parks are now equal to the highest downtown rents. Office construction has not accelerated to any appreciable volume, but in downtown Baltimore, Sylvan Learning Systems has broken ground on a $12 million, seven-story building in the new $350 million Inner Harbor East development, the first major downtown development in 5 years. In both the Pittsburgh and Richmond markets, some small-scale suburban speculative office construction is underway in response to strong demand. In Northern Virginia office absorption was among the highest in the Nation in 1995 due to expansion by America Online, Internet, and other high-technology companies. In the first three quarters of 1995, 5.6 million square feet of office space was absorbed, bringing vacancy rates down to 7 percent. Existing home sales rebounded in the second half of 1995 as interest rates dropped, but those gains were not enough to offset sluggishness early in the year, so, overall, 1995 ended up about 4 percent below 1994's volume. Pennsylvania was the only State with an increase in sales, slightly less than 1 percent. In Virginia year-end figures were down 6 percent from 1994. Federal job uncertainties and defense-related cutbacks dampened home sales throughout the Baltimore-Washington corridor. In Northern Virginia higher sales volumes in 1995 were reported in the Dulles area and along the Interstate-95 corridor near Fredericksburg, but were 8 percent below 1994 in the more populated areas of Fairfax, Arlington, and Alexandria. In the Baltimore area, home sales through November were 7 percent below the same 1994 period, despite a rebound after midyear. In the Pittsburgh market, sales were 1.3 percent above 1994 levels due to a strong recovery in the second half of the year. Single-family home construction declined in 1995 throughout much of the region due to overly optimistic production by builders the previous year. A slight excess in inventories in the middle and upper price ranges remain in both the Maryland and Virginia suburbs of the Washington, D.C., area, where sales incentives, such as free options and special financing terms, are available. In Pennsylvania single-family home production dropped 16 percent. The cutbacks were due to declining sales of both high-end and moderately priced houses in the Pittsburgh area and the weakening demand for high-priced houses in the Philadelphia suburbs. Apartment construction was up in West Virginia by nearly 50 percent, spurred by job gains in the north-central part of the State. Another 900 households are expected to arrive this year with the addition of FBI functions, creating further strong housing demand. The number of multifamily units permitted in the region in 1995 (17,664) increased 14 percent. There were significant gains in Pennsylvania and Virginia, 27 percent and 23 percent, respectively. In the Washington, D.C., area, there are 30 projects (8,800 units) in planning/development stages that are scheduled to be built over the next 18 to 36 months. The overall rental vacancy rate is below 5 percent, according to local sources, and rental housing demand is particularly strong in suburban locations near Metro subway stations. Most of the planned projects will be upscale apartments. Multifamily construction remains at low levels in the Pittsburgh, Baltimore, Richmond, and Hampton Roads markets. SPOTLIGHT ON PHILADELPHIA, PENNSYLVANIA The economy of the Philadelphia metropolitan area has been relatively flat for several years, due to continuing job losses in manufacturing that are being offset by gains in nonmanufacturing, primarily in services industries. In 1995 the number of manufacturing jobs declined by 3,700 (1.2 percent) based on unadjusted December data. This decrease was due largely to the closing of Scott Paper Company. The area has also been hit by defense downsizing. About 2,600 jobs were lost at the Naval Air Development Center at Warminster in Bucks County last year, and nearly 20,000 direct and indirect jobs were phased out in the past 3 years with the closing of the Philadelphia Naval Yard. As of October 1995, the metropolitan unemployment rate was 4.8 percent, below the Pennsylvania rate of 5.1 percent. Within the metropolitan area, the unemployment rate ranged from less than 3 percent in suburban Chester County to 6.5 percent in Philadelphia. The area's shift to a services-based economy has bolstered demand for offices in both suburban and downtown locations. Occupancy in Class AA and A office space in downtown Philadelphia is at historically high levels of 85 to 99 percent as of the end of 1995. There is also renewed interest in some older Class B buildings in the center city area, which are converting upper floors to residential use, with apartments renting for $650 a month for an efficiency unit to $1,200 a month for a two-bedroom apartment. In the Pennsylvania suburbs, office vacancies are at the lowest level in recent years. Health, pharmaceutical, and chemical firms are creating strong demand for office and commercial space, particularly along the Route 202 corridor. Major office parks in close-in Bala Cynwyd are commanding rents of $24 per square foot, comparable with the highest rents in downtown Philadelphia. Radnor and Fort Washington are also prominent centers of activity. Further office rent increases are likely in 1996 due to strong demand and the absence of construction. Home sales and prices were flat in 1995, despite stronger sales in the last half of 1995. In south Philadelphia the sales market has been depressed for several years due to the closing of the Philadelphia Naval Yard. First-time buyers in the suburbs are showing greater preference for new townhouses, which are selling well. In central Bucks County, new townhouse sales have increased their market share to 40 percent of all sales, up from 20 to 30 percent in previous years. In Plumstead Township a 300-unit town-house development was sold out in 18 months, at sales prices starting at $96,000 for a two-bedroom townhouse and $118,000 for a three-bedroom unit. Another 600 units are planned at the site. On the New Jersey side, sales of moderately priced single-family, detached units priced under $200,000 were strong in Burlington Township where 495 sales were recorded in the first 9 months of 1995 compared with 160 in the comparable 1994 period. In Bucks and Montgomery Counties, which account for the greatest volume of single-family production in the metropolitan area, activity in 1995 was 15 and 20 percent, respectively, below 1994 record levels of 3,000 units permitted in each county. In Chester County single-family permits in 1995 were approximately equal to the 2,000 units authorized in 1994. ------------------------------ SOUTHEAST The economy in the Southeast continues to grow at a slightly faster rate than the Nation as a whole, but at a slower pace than in 1994. Between November 1994 and November 1995, nonagricultural employment growth in the eight States was 1.8 percent compared with 1.5 percent nationally. The change in nonagricultural employment ranged from a loss of 1 percent in Mississippi to a gain of 3.3 percent in Georgia. The strongest growth was in the services sector, with an increase of 4 percent. Florida's increase of 5.6 percent in services employment was the best in the region. Construction employment in the region rose 3.4 percent, led by Georgia, with an increase of 11 percent. Construction related to the 1996 Olympics in Atlanta was responsible for much of the increase. Georgia also led the region in the trade employment sector, with a 6-percent increase. The unemployment rate as of November 1995 was less than the national rate of 5.6 percent in all areas except Florida and Puerto Rico. The lowest rate of unemployment was in North Carolina, at 4.2 percent. Prospects for future employment growth remain favorable. During the fourth quarter, there were several significant new job announcements. In South Carolina Michelin is planning a $500 million expansion of four plants in Anderson, Greenville, Lexington, and Spartanburg Counties that will create 1,600 additional jobs. In North Carolina 900 jobs will be added with the location of MCI's headquarters in Cary. In 1995 single-family building permit activity for the eight States, at 273,440 units, was down only 2.8 percent from 1994 levels. Tennessee and Georgia were the only States where single-family permits increased, up 8.9 and 12.6 percent, respectively. The number of multifamily units permitted in the region (96,931) was up 21 percent over 1994 and accounted for 29 percent of the national total. Only North Carolina reported a drop in activity, about 5 percent. Alabama, Georgia, and Tennessee all had increases of more than 36 percent. The sales market in the region remained very active in 1995. Existing home sales were off only about 2 percent from 1994's volume. South Carolina, Mississippi, and Tennessee showed modest increases in sales for the year. The median sales price of existing homes has increased in virtually every major market in the Southeast. Overall, the increase has been about 5 percent. The largest increase was in the Raleigh-Durham area where the median sales price rose 9 percent to $125,900. For the third straight year, home sales in Birmingham exceeded $1 billion. While sales in the first 6 months were down, a substantial recovery during the last half of the year made 1995 the second highest year ever for Birmingham. In Greensboro-Winston Salem-High Point, new home prices in 1995 averaged $160,000, up 5 percent from 1994, while the median sales price for existing homes increased 6 percent to $102,500. In Macon, Georgia, sales in 1995 totalled $167 million and exceeded sales for each of the past 5 years. In Memphis 11,373 homes were sold in 1995, up 13 percent over 1994. Rental housing market conditions remain balanced throughout the Southeast. In Jacksonville, Florida, vacancy rates are near 5 percent, which is attracting some developers of higher rent projects. The number of multifamily units authorized through November was up about 300 units over the 1,346 units permitted for the same period in 1994. A September 1995 apartment survey of 12,000 units in Durham, North Carolina, conducted by the Triangle Apartment Association, revealed a 1.6-percent vacancy rate, the second lowest rate since 1987. In Columbia, South Carolina, the vacancy rate is less than 4 percent. In Memphis occupancy in the larger apartment complexes is averaging 95 percent. With the substantial increase in apartment construction in the past 2 to 3 years, softer rental market conditions may begin to appear during 1996. The Nashville Business Journal reports that the area could see a glut of apartments in the coming year. Local sources estimate that the area can absorb about 2,000 units annually. However, a local management company estimates that almost 3,500 apartment units are under construction or planned to start construction during the first quarter of 1996. In Charleston, South Carolina, the rental vacancy rate is more than 10 percent. In the South Jefferson County area of Birmingham, the rental vacancy rate has increased to 8 percent, and there are at least 800 to 1,000 additional units planned or under construction. Some projects are already offering 1 or 2 months' free rent. The Augusta, Georgia, market remains weak, with apartment occupancy in 1995 down to 89 percent compared with 91 percent in 1994. SPOTLIGHT ON HUNTSVILLE, ALABAMA With the advent of NASA's Apollo Space Program, the Huntsville area's population grew rapidly in the 1960s. As the space programs were cut back, population gains were more moderate, about 2 percent annually in the 1970s, and about 1 percent a year during the 1980s. While the economies of most metropolitan areas in the Southeast have expanded rapidly in recent years, Huntsville remains somewhat stagnant. As a result of changes at NASA, 1,100 jobs have been eliminated in the past 3 years at the Marshall Space Center, reducing total employment to 3,000. Still, nonagricultural employment grew by 7,600 (5.7 percent) between 1990 and 1994, and unemployment remains low, at 3.7 percent as of October 1995. The median family income in the area is the highest in the State, at $45,900. As part of the 1995 Base Closure and Realignment Commission actions, the United States Army will be moving 2,600 jobs from the Aviation-Troop Command in St. Louis to the Redstone Arsenal over the next 3 years. This will provide a much-needed boost to the Huntsville economy and to Redstone, where civilian and military personnel have declined by 15 percent since 1991. There are 8,600 civilians and 1,800 military personnel at Redstone. Close to 50 percent of the area's employment is related to U.S. Department of Defense (DoD) and NASA programs, down from almost 80 percent in the 1970s. More than 270 local aerospace companies do business with either NASA or DoD. The reduction in Federal spending has forced the area to diversify in the private sector, but diversification has been a slow process. A recent survey of the hiring outlook of companies in the Huntsville metropolitan area indicates that 13 percent of the companies surveyed would be hiring, but another 10 percent would be laying off employees. Huntsville has the second largest research park in the world in terms of size and numbers of employees, and serves more than 50 Fortune 500 companies. Two such companies, SCI Systems and Intergraph, are based in Huntsville and are not heavily dependent on the Federal Government. SCI, a leading producer of electronic products, employs 3,650 persons in Huntsville and recently announced expansions that will create an additional 1,000 jobs. Intergraph, a maker of computer-assisted workstations for phone companies, employs 3,750 persons in Huntsville but recently cut 250 jobs. Other large employers in the area include Huntsville Electronics (2,600 employees), Teledyne-Brown Engineering (2,400), and Avex Electronics (1,350). The rental market is soft due to the stagnant economy and the overbuilding during the late 1980s. While the market improved slightly in 1995, the rental vacancy rate still exceeds 10 percent. As a result there has been no multifamily construction in the area since 1993. Single-family activity is also very slow, with permits averaging about 32 per month in 1995. Total home sales (new and existing) were up about 5 percent in 1995 (3,224 homes), and the average sales price increased a modest 2.3 percent to $106,329. ------------------------------ MIDWEST Employment grew moderately in the Midwest during 1995, increasing by 320,000 jobs (1.4 percent). Retail trade and business services provided the largest number of new jobs. The unemployment rate in the fourth quarter was below the national rate in all States except Illinois. Minnesota's 3.3-percent unemployment rate is the lowest in the region, and there are labor shortages for skilled and unskilled jobs. Illinois' economy remained healthy in 1995, boosted by strong employment growth in the Chicago metropolitan area. Ohio gained 61,600 jobs in 1995; all major sectors and the State's 12 metropolitan areas reported employment growth. The region's moderate employment growth is expected to continue into 1996, boosted by higher goods production, expanding exports, and a healthy residential construction industry. Single-family home construction in the region strengthened during the fourth quarter of 1995, but activity for the year was below 1994's strong performance. Building permits were issued for 174,973 single-family units in 1995 compared with 185,240 units in 1994. Despite the decline the number of single-family units authorized was still the second highest in the past 6 years and about equal to 1993 levels. Illinois, Michigan, and Ohio led the region, each with more than 32,000 units. The continued growth in the Midwest resulted in a relatively good year for home sales. Sales of existing homes totalled close to 808,000, about 4 percent below the very strong 1994 sales volume. In October and November, existing home sales in Illinois were up 8 percent over last year, driven by significantly increased activity in the Chicago area. New home sales in the Chicago area also were strong in 1995, with 11,200 signed contracts compared with 10,600 in 1994. Sales of new homes priced between $160,000 and $180,000 sold particularly well. Several builders reported strong activity in south suburban Richton Park and Park Forest, older communities that experienced little homebuilding until recently. Builder expectations for 1996 in south Cook County are running high due to pent-up demand for new single-family homes from move-up buyers. One builder plans to increase production by 25 percent over 1995. In the Detroit area, 1995 sales of both new and existing homes maintained the strong 1994 levels. Homebuilding in the metropolitan area in the first 11 months of 1995 (13,500 units) was running slightly ahead of last year's solid figure (13,100 units) at this time. In Ohio sales of existing homes (181,400) in 1995 were just 3 percent below very high 1994 levels. New home sales in Columbus remained strong throughout the metropolitan area in 1995. New and existing home sales in the Indianapolis area in 1995 were up about 11 percent over 1994. Builders reported brisk sales of homes priced between $90,000 and $120,000, the range most popular with first-time homebuyers. Indianapolis area builders anticipate sales of new homes in 1996 will remain about the same as in 1995. Builders in Madison, Wisconsin, also reported sales of new homes to first-time buyers in 1995 were up over 1994. New homes priced between $120,000 and $160,000 sold well, while higher priced homes ($175,000 to $250,000) did not sell as well. Midwest rental housing markets are generally strong, with occupancy around 95 percent. Multifamily housing building activity in the region continued to show strong growth in 1995 for the second consecutive year. Building permits were issued for 56,679 units in 1995, up 8 percent from 1994 and the highest level in the past 6 years. Multifamily construction increased in all States except Ohio and Wisconsin, where 1995 activity was approximately equal to strong 1994 levels. Indiana's activity rose 43 percent in 1995 to almost 8,500 units. Three-fourths of Minnesota's 4,906 multifamily units were permitted in the Minneapolis-St.Paul area. The Twin Cities' tight rental market and increasing rents are stimulating apartment construction. Reflecting strong activity in the Madison and Milwaukee areas during the second half of 1995, multifamily production in Wisconsin totalled 11,737 units, the second highest in the past 6 years. SPOTLIGHT ON MINNEAPOLIS-ST. PAUL, MINNESOTA The Twin Cities' economy continued to expand in 1995, but at a much slower rate than the previous year. The December 1995 employment level was 1.3 percent greater than December 1994, compared with a 2.6-percent increase from December 1993 to December 1994. All major employment sectors posted moderate gains, and the unemployment rate for December had fallen to 2.5 percent from 2.7 percent a year earlier. The economic expansion has resulted in a much-improved market for office space in the Twin Cities. The overall office vacancy rate in the metropolitan area as of mid-1995 was 11.6 percent, an 11-year low. Vacancy rates for Class A space in downtown Minneapolis and the southwestern suburbs had fallen to the 4- to 5-percent range by the fourth quarter. As a result, new commercial development is being considered for the first time since the 1980s. Moderate employment growth is expected in 1996. Cypress Semiconductor and Seagate Technology are both expanding their computer-chip manufacturing plants in Bloomington, and the Mall of America continues to attract shoppers from around the globe. However, the recently announced acquisition of Loral Corporation by Lockheed Martin creates uncertainty about 1,800 defense-related workers in the Twin Cities area, and Minnesota Mining and Manufacturing is eliminating 2,400 jobs in the State over the next 12 months, primarily through attrition. The economic growth in the Twin Cities area has favored demand for sales housing by a wide margin. Since the late 1980s, sales housing production has outnumbered rental housing by three to one. A well-educated population with relatively high incomes, local preference for homeownership, and low interest rates have contributed to the metropolitan area's strong sales housing market. The National Association of Homebuilders ranked the Minneapolis-St.Paul area second in housing affordability among larger U.S. metropolitan areas in the third quarter of 1995. The median sales price of existing homes was $106,800 in 1995, up 5 percent from 1994. Homebuilding began the year with disappointing levels of demand and production, but activity picked up strongly in late Spring and continued through the rest of 1995. Recent activity has shifted toward townhomes and duplexes, and away from single-family, detached units. Local builders reported steady growth in sales of new homes through the Fall in contrast to past years when sales activity began to slow in September and October. Building permits were issued for 3,870 single-family units in the fourth quarter of 1995 compared with 3,320 units for the same 1994 period. A total of 13,900 homes were permitted for all of 1995. Area builders are expecting another good year in 1996. Rental housing production has lagged behind demand in the Twin Cities area for the past several years. Activity has been predominately in specialized submarkets, such as high-end townhouses and projects for the elderly. There have been a few tax-credit projects for lower income renters, but a shortage of affordable rental units now exists. Rental vacancies have all but disappeared in many submarkets throughout the metropolitan area. A local apartment search firm reported an overall vacancy rate of 2.8 percent in December 1995, with 40 of the 63 submarkets surveyed showing vacancy rates below 2 percent. In 1995 permits were issued for 3,800 units, a significant increase from 1994 activity. In November 1995, 90 communities in the Minneapolis-St.Paul area agreed to produce affordable housing under the State's Livable Communities Act. This is seen as a first step in alleviating the shortage of rental housing. ------------------------------ SOUTHWEST Nonagricultural wage and salary employment in the Southwest ended 1995 with a solid 3.6-percent rate of growth. New Mexico, with an increase of 5.1 percent, continued to outperform the rest of the States. New Mexico's growth may be dampened somewhat in 1996 by job losses associated with Federal budget cuts. Los Alamos National Laboratory outside Santa Fe is expected to eliminate 1,100 jobs in 1996, and Sandia National Laboratories in Albuquerque will reduce employment by 700. Employment increased a healthy 2.4 percent in Oklahoma. In Louisiana and Texas, employment increased 3.9 and 3.6 percent, respectively. Texas exports to Mexico are forecasted to total more than $26.8 billion in 1996. Sales of new and existing homes remained fairly strong in 1995, improving significantly in the last 6 months of the year. Existing sales volume in the region was down less than 2 percent from 1994 levels and was about equal to a very strong 1993. The median sales price for an existing home increased moderately in 1995 in most of the major markets. Demand in the Albuquerque and Austin-San Marcos markets continued to be strong, with 1995 sales prices up 6 and 5 percent, respectively, over 1994 levels. A boom in affordable housing is underway in Houston, fueled largely by private builders. Sources estimate that more than 400 homes priced under $70,000 are in various stages of development. In 1995, single-family permits were issued for 104,621 units in the region, down only about 3 percent from 1994. Permit activity dropped in all States. Multifamily housing activity continued to show strength in the Southwest in 1995. The number of units permitted (44,722) increased 5 percent over a very strong 1994. In Texas activity (32,434 units) was about equal to last year, and New Mexico and Louisiana reported increases of 15 and 41 percent, respectively. The Southwest accounted for about 13 percent of all U.S. multifamily units permitted in 1995. Most of the major rental markets are currently balanced. The rental occupancy rate in the Dallas-Fort Worth area, for example, was about 94 percent in December 1995. However, the large numbers of new apartments coming on the market in many areas over the past 12 months have begun to have an impact. Occupancy rates have dropped in many areas, and it is expected that the market will become increasingly competitive in 1996. In San Antonio the rental occupancy rate had dropped to 91 percent in December 1995, down from 95 percent a year earlier. Occupancy rates are expected to remain in the lower 90s during 1996 as the approximately 2,700 units now under construction are completed and enter the market. In Albuquerque the occupancy rate has dropped to 92 percent in December 1995, down from 97 percent a year earlier. SPOTLIGHT ON OKLAHOMA CITY, OKLAHOMA The Oklahoma City metropolitan area population reached 1 million persons in mid-1994, a 5-percent increase since the 1990 census. This growth represents a significant turnaround since the population loss of about 2 percent that occurred from 1985 to 1988. The Oklahoma City area's historical dependence on the oil and gas industry is slowly changing due to State and local efforts to encourage economic diversification. During the 3-year period ending in late 1987, when oil prices fell by 50 percent, the 6-county metropolitan area lost more than 32,000 jobs, almost 8 percent of total employment. Oil prices have not rebounded, but the local economy has shown some recovery, as nonfarm employment increased 6.4 percent between 1990 and 1994, and 2 percent for the 12-month period ending in November 1995. State government is the area's largest employer with more than 37,000 employees, followed by Tinker Air Force Base with 19,000 military and civilian personnel. The largest manufacturing employers are General Motors (5,300 employees) and AT&T (4,300 employees). The General Motors plant is scheduled to produce the new Chevrolet Malibu starting with the 1997 model year. The AT&T plant, which produces telephone switching equipment, escaped the latest round of corporate layoffs with only a few early retirements. Other large employers in the area include the Oklahoma Health Center and the Federal Aviation Administration (FAA) Aeronautical Center, each with about 6,000 employees. The area is also home to the University of Oklahoma, with just more than 5,000 faculty and staff, 21,300 students, and an annual budget of close to $150 million. The Oklahoma Quality Jobs Act, which provides rebates to new or expanding companies, is partly responsible for a projected 6,000 jobs expected to be created by more than 30 companies in the metropolitan area over the next 3 years. For example, the Southwest Airlines reservations center is scheduled to create 1,000 jobs; DataCom Sciences (a provider of technical workers to FAA), 458 jobs; and the Hertz Corporation reservation center, 387 jobs. The April 19 bombing had a temporary effect on the overall economy of the Oklahoma City area, but it will have a long-term effect on the six-block area on the northern edge of the central business district. So far, more than 500,000 square feet of commercial space has been approved for demolition, while other structures are boarded up and for sale. A $39 million congressional appropriation is being used to aid in the rebuilding of the area. Construction has just started on a $238 million downtown development project, the Metropolitan Area Projects (MAPs) plan. The MAPs project was approved by Oklahoma City voters in December 1994 and is unrelated to the rebuilding of the bomb-damaged area of the city. Components of the project include a 20,000-seat arena, a new baseball stadium, a riverwalk, a new library, and the renovation and expansion of the Myriad Convention Center. Plans for two new hotels in the central business district have been announced as a result of the MAPs development. There is only one existing hotel in operation in the Oklahoma City downtown area, making it difficult for the city to effectively compete for national and regional conventions. During 1995 almost 3,400 single-family housing units were permitted in the Oklahoma City area, an 8-percent decrease from 1994. The year ended on an upbeat note, however, as lower interest rates during the last half of the year helped move the unsold inventory of new houses and provided confidence to builders and buyers alike. More single-family units (17 percent) were permitted in the second half of 1995 than during the first half. Single-family activity is highest in southwest Oklahoma City and in the suburban communities of Norman and Edmond. New homes in the $80,000 to $120,000 price range are selling best, with homes more than $150,000 selling more slowly. Builders note a slight surplus of new higher priced homes and are reducing production accordingly. Sales of existing homes in the Oklahoma City area totalled 10,810 units in 1995. Although this figure represents a decrease of just more than 1 percent from 1994, it was the second best year on record, as reported by the Oklahoma City Metropolitan Association of Realtors. The median sales price for the year was $70,400, a 6-percent increase over the 1994 price. The area still rates among the most affordable housing markets in the Nation. The Oklahoma City rental market experienced soft market conditions beginning in the early 1980s oil bust, as occupancy rates plummeted to 80 percent and rental housing production virtually stopped. Construction in the past 10 years has been limited primarily to retirement housing. Two low-income tax-credit projects and a student-oriented project near the University of Oklahoma started construction in 1995. With the lack of production, rental market conditions have gradually improved to an average market occupancy in the low 90-percent range. However, an abundance of affordable sales housing and low population growth have kept the rental market in the doldrums. Rents increased 4 to 5 percent annually during the early 1990s, but slowed to 2 percent in 1995, making significant additions to the rental inventory unlikely during 1996. ------------------------------ GREAT PLAINS Nonagricultural wage and salary employment in the Great Plains increased by 87,900 jobs from November 1994 to November 1995. Missouri led the region with 42,600 added jobs; Kansas City accounted for a major portion of that growth by adding 26,000 jobs. Nearly 3,500 of the new jobs added in the Kansas City area were in riverboat gaming. Iowa, with 28,800 new jobs, was the second leading job producer in the region, followed by Kansas with 14,300 and Nebraska with 2,200. Unemployment remains low in all States. As of October the unemployment rate in Nebraska was 2.2 percent, the lowest in the Nation. Iowa was next in the region, with 3.0 percent, followed by Missouri with 3.2 percent and Kansas with 3.9 percent. Labor shortages are a problem in parts of the region. In 1994 employers in central and northern Iowa began reporting labor shortages. In the northwest corner of the State, the labor supply became so tight in 1994 that a "Come Home to Siouxland" marketing campaign was begun. Slow growth in 1995 mitigated the labor shortage somewhat, but shortages still exist in skilled jobs in the manufacturing and construction industries. In the Des Moines area, there is a critical shortage of clerical workers partially due to the expanding needs of State government and life insurance companies. In the Kansas City area, employers have been reporting shortages of labor due to rapid employment growth. Hiring of skilled computer personnel by Gateway 2000, DST and its affiliated companies, and Electronic Data Systems has created intense competition. Gateway 2000 and Electronic Data Systems added almost 2,000 jobs between them during the 12 months that ended in November 1995. During 1995, building permits for new residential construction in the Great Plains region totalled 53,192 units, down approximately 11 percent from last year's activity (59,697 units). Single-family building permits (39,031) were off almost 12 percent from last year, with all four States showing declines. Great Plains' housing markets remain among the most affordable in the Nation. All the metropolitan areas listed in the National Association of Realtors survey of median sales prices were considerably below the national median sales price for existing homes. The Kansas City and St. Louis areas had median prices in 1995 of $91,700 and $87,700, respectively, up 5 and 3 percent over 1994 levels. The second most expensive areas in the region were Des Moines ($87,000) and Cedar Rapids ($86,200), where prices increased 6 and 4 percent, respectively, from last year. The Lincoln and Omaha markets in Nebraska, with median sales prices of $82,500 and $83,000, showed the greatest home price increases of approximately 8 and 10 percent, respectively, over 1994 levels. Multifamily building permit activity in 1995 totalled 14,179 units, down 8 percent from 1994. Significant declines in Iowa and Missouri offset the substantial gains in Nebraska and Kansas. The number of multifamily units in Nebraska (3,059) was up 23 percent due largely to the tight rental market in Omaha. The increase in activity in Kansas (17 percent) was due to improved market conditions in the Kansas City suburbs. The rental market in Wichita remains soft, with vacancy rates in apartment projects about 10 percent at year's end. Anticipated employment growth in the aircraft industry should help the rental market in the coming year. SPOTLIGHT ON LINCOLN, NEBRASKA Lincoln is the State capital and the home of the main campus of the University of Nebraska. Between 1990 and 1994, the area experienced strong sustained employment gains, averaging 2 percent annually. The rate of growth slowed to 1.5 percent in 1995 as several major firms downsized their operations. Unemployment has been consistently low in the Lincoln metropolitan area, averaging 2.4 percent in 1995. This year the University of Nebraska Foundation will begin to develop the 130-acre Nebraska Technology Park, which will eventually contain more than a million square feet of commercial, office, and research space. The just-announced Technology Development Center will incubate innovative technologies that will create new job opportunities in the State of Nebraska. Through a cooperative effort, tenants will have access to the university's faculty and resources. Transcrypt, a company associated with Technology Park, currently occupies a 22,000-square-foot facility at the northern edge of the park, and plans to develop more than 90,000 square feet of space for research, development, and manufacture of electrical components. Molex, Inc., a manufacturer of electronic connectors and high-speed stamping and assembly parts, with facilities adjacent to the park, is currently building a new 300,000-square-foot facility. Reflecting the strong economic growth, there has been more than 1 million square feet of retail space constructed in the Lincoln area in the past 3 years. Lincoln has been one of the most affordable housing markets in the Nation. However, strong demand over the past 2 years has pushed prices above the normal rate of inflation. In 1995 the median sales price for existing homes in the metropolitan area was $82,500, up almost 10 percent in the past 12 months. According to the Lincoln Board of Realtors, the average sales price during 1995 was $97,000. In 1994 and 1995, an average of 1,900 housing units were permitted annually in the Lincoln metropolitan area. Single-family activity in 1995 was down almost 18 percent from 1994 levels, but multifamily activity was up by 17 percent. Because single-family home construction is predominately presold, the decline reflects lower demand. The overall rental market in the Lincoln area is balanced, with a vacancy rate between 5 and 6 percent. The Lincoln Board of Realtors' annual survey of almost 9,000 apartment units in larger complexes reveals that the vacancy rate has been below 4 percent since 1993. Multifamily building activity during the past 2 years has averaged close to 900 units annually, almost double the activity from 1991 through 1993. The rental market is expected to remain balanced, although it will become more competitive over the next year as the large supply of new units are completed. ------------------------------ ROCKY MOUNTAIN Employment growth picked up slightly in Colorado and Wyoming in the fourth quarter of 1995, although Wyoming's 1.1-percent annual gain made it the only State in the region with an increase below the national average. Utah continues to lead the region; its annual gain slowed slightly to a still robust 5.3 percent from the 6-percent pace earlier in the year. The boom in construction has eased slightly, although it is still the fastest growing job sector in the region. Crop prices are up while beef prices remain low. The net effect has been some improvement in overall farm income. Cattle producers, however, are still caught in a squeeze. Generous snowfall at year's end should cause a pickup in visitors to ski areas in the first quarter. A recent report from the South Dakota Mining Association points out that while the gaming and tourism industries supply more jobs than mining, the mining industry provides more income in the economy. Recent population estimates from the Census Bureau indicate that in-migration to the region continued at a high level in 1995. Colorado and Utah are the fourth and fifth fastest growing States, respectively, in the Nation. Labor markets remain tight in the Rocky Mountain region. Utah has now joined North and South Dakota with an unemployment rate under 3 percent. Rates in Colorado and Wyoming are close to 4 percent and Montana's 5.7-percent rate is the only one in the region close to the national average. Demand for skilled workers continues to outstrip the supply. Even entry-level jobs in trade and services are difficult to keep filled. The labor shortage in trade has prompted restaurant operators in Colorado to push for legislation to allow workers under the age of 21 to serve liquor. Single-family homebuilding activity in the region picked up in the fourth quarter and permits for 1995 (51,112 units) were down only 1.5 percent from 1994. Permits in the Denver area were off only 5 percent from last year. The inventory of developed home lots has grown in some markets, but the unsold inventory of speculative homes remains steady. It appears that builders were expecting some slowdown. Multifamily activity was well ahead of last year's pace; the number of units permitted (21,399) was up 27 percent from 1994. In Colorado and Utah the number of multifamily units was up 36 and 44 percent, respectively, the highest levels of the last 6 years. Much of the initial surge in apartment building activity that began in the Fall of 1994 has reached the market. While absorption remains strong, preleasing has slowed and some rent concessions are beginning to appear. Student rental demand is down in some markets because of reservations about the Federal budget. Loan uncertainties have made some students cautious about committing to long-term leases; doubling up with other students or moving back home are some of the options they pursued. The shift to homeownership caused by lower interest rates has continued to ease rental market demand pressure, even where new construction has been limited. Existing home sales for the region in 1995 were off only 2 percent from 1994's volume. The modest decline from last year in Colorado was tempered by an increase in sales in Utah. The slight drop in sales activity has not affected prices in the major markets. The 16-percent increase in the median sales price in Salt Lake City led the region. The median sales price in Denver was up 9 percent to $127,300 and in Colorado Springs was up 10 percent to $114,700. Modest gains were more typical in the remainder of the region. SPOTLIGHT ON GRAND JUNCTION, COLORADO Grand Junction, located in the far western part of Colorado, is the largest city between Denver and Salt Lake City. The city of Grand Junction comprises about 35 percent of the metropolitan area's 1995 population of 103,000 persons. Nearly 75 percent of the metropolitan area's land is owned by the U.S. Government. Wide swings in employment during the past several decades have been a result of the volatile energy industry's presence in the area. Oil shale development in the late 1970s and early 1980s brought on the most recent boom, which was followed by a bust when the industry collapsed. The local economy has grown at a solid pace since, and average employment growth has been 3 to 4 percent. The recovery was stimulated by Grand Junction's expanding role as a regional trade and service center, increased tourism, and in-migrating retirees who have been attracted to the area. In addition, the U.S. Department of Energy's Uranium Mill Tailings Cleanup program added several hundred jobs to the economy, and the local community has attracted some light manufacturing businesses. Slowed economic growth is expected in the immediate future because of already announced corporate closures and layoffs, and the winding down of the Tailings project. Employment growth will continue as tourism and increased development on the Western Slope enhance Grand Junction's role as a trade and service center. Grand Junction's sales housing market strengthened during the second half of 1995 because of lower interest rates. Total sales for the year, however, were still down 12.6 percent from 1994's record year. Despite the decrease in activity, the average sales price increased by nearly 10 percent to $100,100. Recent price gains have made Grand Junction much less of a buyer's market than it was in the early 1990s, but there is still a variety of housing types and price ranges available. There are differences in market strength by price range. The strongest segment is the first-time homebuyer price range of $60,000 to $100,000. Existing homes priced more than $200,000 have seen some reduction in selling prices. Buyers in this price range, especially retirees, have preferred new homes over the larger, but less amenity-rich existing stock. New townhouses are selling quickly in the $120,000 to $200,000 range. Builders have also responded to first-time buyers, adding new homes in the $70,000 to $90,000 price range. The Grand Junction rental market has softened in the past year as mortgage interest rates declined and many renters were able to purchase homes. Because job growth has occurred largely in the low-paying retail trade and services sectors, many workers have not been able to afford the prevailing rents and have had to double up. As a result apartment projects are experiencing increased vacancies and have begun to make rent concessions. ------------------------------ PACIFIC The Pacific economy continued its moderate expansion in the fourth quarter, paced by California's recovery. Almost 300,000 new jobs were added in California between November 1994 and November 1995, a 2.4-percent gain. Tourism, business services, electronics manufacturing, and exports have been strong, more than offsetting continued losses in defense-related industries and restructuring in the financial and insurance sectors. Employment growth in Arizona, after a very slow start, maintained a rapid 3.5-percent annual rate of growth throughout the second half of 1995, ranking fifth nationally. Construction and manufacturing employment hit record levels, led by aircraft, missile, and electronic equipment makers. More than two-thirds of new jobs were created in the Phoenix area, where a 4-percent year-over-year increase in December was double Tucson's rate. Moderate growth is projected for 1996 for both Tucson and Phoenix. Las Vegas's casino boom will be heating up as a number of casinos are completed in 1996. In addition, the completion of the 1-million-square-foot Galleria shopping center in Henderson in February is expected to add another 1,000 jobs. In-migration of both retirees and job-seeking households is fueling very strong residential construction. Single-family home construction in the Pacific region, as measured by building permits, was down 8.5 percent for 1995 compared with 1994. There were modest declines from very strong 1994 levels in Arizona and Nevada, but volume in 1995 still exceeded 1993 levels. The Phoenix area broke its single-family permit record set in 1978. In California single-family permit activity was off almost 12 percent (68,673 units). Existing home sales in Arizona in 1995 were only 1 percent below record 1994 levels, but local sources attribute the drop to a shortage of listings rather than lower demand. Reflecting the continued strength of the sales market, median sales prices in Phoenix and Tucson in 1995 were up 5 and 6 percent, respectively, over 1994. Las Vegas resales continued strong, with a modest increase in the median sales price of 2.7 percent to $113,500 for 1995. While sales of existing homes in California in 1995 were down almost 12 percent from 1994 levels, sales in the last quarter were up significantly from the fourth quarter of 1994. Median sales prices were down in all major markets. Declines ranged from a negligible 0.4 percent in the San Francisco Bay Area to 6 percent in Riverside-San Bernardino. The declines in prices and lower interest rates are making housing more affordable. Local sources expect the increased affordability and improving economic conditions will translate to expanded activity in the sales market starting in the Spring of 1996. Multifamily housing permit activity in 1995, at 12,737 units in Arizona and 10,299 units in Nevada, increased 31 and 26 percent, respectively, over 1994. Activity in 1995 in the two States was almost triple 1993 levels. Las Vegas and Phoenix have absorbed the high production levels of the past 2 years without any problems. The rental vacancy rate in Las Vegas is running about 5 percent. In Phoenix rental vacancy rates are in the 5- to 6-percent range, the lowest since 1981. It is expected that vacancy rates will increase during the first half of 1996 as large numbers of new units come on the market. The Tucson rental market became much more competitive as new units entered the market in 1995. The rental vacancy rate is about 8 percent, more projects are offering concessions, and rent increases are much smaller. Multifamily housing permit activity in California in 1995 (16,113 units) fell 16 percent from already depressed 1994 levels. The San Francisco Bay Area is beginning to attract investor attention for new construction because of improving occupancy, rents, and vacancy rates (4 to 6 percent), particularly in San Francisco and San Jose. Sacramento is balanced, while Fresno is still soft with an 8-percent vacancy rate and flat rents. In Southern California rental markets are mixed. Rental market conditions in Los Angeles County remain soft, with vacancy rates about 8 to 10 percent. The Lancaster-Palmdale area is still extremely weak, with vacancy rates approaching 15 to 20 percent. In Orange County the market is steadily improving; rental vacancy rates are about 7 to 8 percent, and as low as 4 to 5 percent in the high-rent communities. Riverside and San Bernardino Counties are still very soft, with rental vacancy rates estimated at 13 to 14 percent. San Diego is strengthening; rental vacancy rates are estimated at 4 to 5 percent and rents are increasing. Property managers remain hopeful that improved economic conditions in Southern California in 1996 will lead to stabilized occupancy and perhaps higher rents, as rents throughout this part of State have remained flat or have fallen for the past several years. SPOTLIGHT ON SAN JOSE, CALIFORNIA The San Jose metropolitan area is home of Silicon Valley. Leading high-technology corporations include Apple, Lockheed, IBM, National Semiconductor, Hewlett-Packard, Varian, and General Electric. The yearend 1995 population of the metropolitan area was 1,600,000, reflecting an average annual increase of 1.2 percent since 1990. Cutbacks in defense and aerospace businesses and corporate restructuring in high-technology industries caused the area to lose almost 28,000 jobs between 1990 and 1994. Since early 1994 the area has begun to recover. For the fourth quarter of 1995, nonagricultural employment totalled 804,500, a modest 1.2-percent increase over 1994 fourth-quarter employment. The greatest gains were in construction (9.2 percent), durable goods manufacturing (3.5 percent), and services (1.1 percent). The sales housing market has mirrored the economic cycle. During the 1980s housing prices were fueled by the above-average salaries of high-technology employees. Between 1980 and 1990, the median home value in the San Jose area increased from $107,700 to $289,400, and the county became one of the most expensive housing markets in the Nation. With job losses in the early 1990s, sales prices declined; by mid-1994, they had dropped about 13 percent from 1990 levels. As the area's economy began to rebound, the median price of an existing home rose again, by 1.4 percent in 1995. The improvement in the new sales market is attributable not only to the economic recovery, but to the decline in production and reduced inventories. Between 1990 and 1993, single-family permit activity averaged 1,750 units annually compared with an average of 3,200 in the 1980s. With improved conditions single-family permits have averaged 2,150 units a year during 1994 and 1995. The level of multifamily housing construction activity averaged 2,700 units annually in 1990 and 1991, but has declined to 1,500 units a year since then. The drop in production has allowed the rental market to remain relatively balanced compared with other California markets, and the rental housing vacancy rate has held steady at about 5 percent. Demand for upscale rentals has been strong. In the past 2 years, projects located close to major employers have done exceptionally well, renting at a rate of 20 to 30 units monthly. Rents for new two-bedroom, two-bath units typically range from $1,200 to $1,600. ------------------------------ NORTHWEST Economic activity in the Northwest slowed during 1995. Fourth-quarter employment was up 72,700 jobs, 1.6 percent over the fourth quarter of 1994. This growth rate reflected a drop from the 2.8-percent rate from 1993 to 1994. All States reported net job gains for 1995; employment was up 3.8 percent in Oregon, 1 percent in Idaho, and 0.6 percent in both Washington and Alaska. The unemployment rate for the region was 5.7 percent for the fourth quarter, down from 5.8 percent for the fourth quarter a year ago. Oregon continued to lead the region in employment growth. The Blue Chip Economic Growth Update reported that in the 12 months ending September 1995, Oregon had the fourth highest rate of nonfarm job growth in the Nation, at 4.3 percent. The rapid growth in the electronics and electrical equipment industries has helped to diversify the State's economy. Despite impressive job increases since 1990, population growth in Oregon has begun to slow. Consequently, the labor market grew even tighter during 1995 and there are shortages of qualified workers in the construction trades and high-technology industry. The employment outlook for Washington is favorable. The Boeing Company has settled a strike by 22,500 aerospace machinists. In 1995 Boeing received orders for 346 airplanes, worth an estimated $31.2 billion. This amount was more than four times the dollar volume of 1994 sales and the highest total since 1990. Industry analysts predict that jobs at Boeing will increase from a current level of 71,000 to around 85,000. In addition, high-technology industries continue to grow, especially in the Puget Sound region. Intel recently announced that it will build a research/manufacturing facility in the Tacoma metropolitan area that will employ 6,000 people. Idaho and Alaska will maintain a more modest pace of job growth in 1996 than Oregon and Washington. Tourism and fish harvesting will remain strong and a new gold mine will open near Fairbanks. Alaska still faces serious budget problems, however, due to declining oil revenues. Single-family building permits (52,152 units) in 1995 were down almost 11 percent from 1994 levels. Only Alaska showed an increase. The decrease in activity ranged from 16 percent in Idaho to 4 percent in Oregon. A total of 25,498 multifamily units were permitted in 1995, 5 percent above 1994 levels. Multifamily building activity was up nearly 45 percent in Oregon and 23 percent in Alaska. On the other hand, activity dropped 40 percent in Idaho and 10 percent in Washington. However, the number of units permitted in Washington (11,307) was about equal to 1993 volume, and was the second best of the last 5 years. Existing home sales in the region were off less than 2 percent from 1994's volume. In Washington resales were down 5 percent from a very strong 1994 level. The median sales price in the Seattle-Everett and Tacoma areas increased 2 percent in 1995 to $159,000 and $121,400, respectively. Existing sales were up 3.4 percent in Oregon, the highest volume in the past 3 years. Reflecting the strong demand, the median sales price was up 9 percent in Eugene-Springfield to $104,900 and almost 10 percent in the Portland area to $128,400. Rental market conditions in the major markets in Washington, Idaho, and Alaska ranged from balanced to soft. The areas with the highest rental vacancy rates were Richland-Kennewick-Pasco (the Tri Cities), at 10 percent, and Boise, at 9.0 percent. A rapidly declining employment base has weakened the rental market in the Tri-Cities area. The Boise rental market continues to soften as the large supply of new units comes on the market. In contrast, rental markets are very tight in much of Oregon. The rental vacancy rates are below 4 percent in Eugene, Portland, Medford, and Salem. SPOTLIGHT ON PORTLAND-VANCOUVER, OREGON-WASHINGTON The 1990s are proving to be the decade of increased diversification for the Portland area economy. The early 1990s were characterized by rapid population growth, strong levels of residential construction, and the completion of a world-class convention center and sports arena. Now, at mid-decade, aggressive private and public investment has driven the local unemployment rate to near record lows. As of December 1995, employment stood at 853,300, up by 35,100 jobs from December 1994, a robust 4.3-percent gain. The manufacturing sector had an employment gain of 5.2 percent. Leading job-generating sectors included electrical equipment, which accounted for 52 percent of the 6,700 jobs added in manufacturing. Since 1990 the electronic equipment industry has increased its share of manufacturing employment from 12 percent to 16 percent, while office equipment has increased its share from 3.4 percent to 5.4 percent. High-technology firms have been attracted to the area for a number of reasons, including Oregon's longstanding good relations with Japan, the quality and quantity of water, and the economies of agglomeration. The largest single industry group gain (4,500 jobs) was in construction. Major construction projects underway in 1995 included expansion of production facilities by Intel (microprocessors), Wacker Siltronic and SEH America (silicon wafers), and Fujitsu Microelectronics (memory chips). New firms building production facilities in 1995 were Integrated Device Technology (computer chips), Komatsu Electronic Metals (silicon wafers), LSI Logic (custom computer chips), and Epson (printers). In addition to its expansion project, Intel is constructing a new production facility and a research facility. These projects represent nearly $10 billion in new investment and will add 5,000 jobs to the local economy within the next 2 years. In addition to massive investment in the high-technology sector, the 11-mile westside, light-rail project was also under construction in 1995. The nonmanufacturing sector added nearly 28,000 jobs over the year. Excluding construction, leading industry groups were real estate, business services, engineering/management services, motion pictures, social services, and health services. The unemployment rate as of December 1995 was 3.6 percent and averaged below 4 percent throughout the year. Shortages of trade and high-technology plant operators and technicians have affected the local labor market all year. Local community colleges have had difficulty meeting demand for qualified high-technology workers and have started recruiting students from outside the metropolitan region. Local issues related to the new investment activity focus not on the number of jobs, but on the salary workers can expect to earn at the high-technology firms. Approximately 80 percent of the jobs will pay $30,000 or less per year and 77 percent of these positions will be filled by local hires. Of the approximately 1,000 jobs paying more than $40,000 per year, only about 25 percent are expected to go to State residents. Residential construction during 1995 had its strongest year of the decade, with permits issued for 18,019 units, 6 percent more than the 17,054 units authorized in 1994. Together, these 2 years represent 39 percent of the total permit activity for the 1990s. Single-family authorizations totalled 10,925 homes in 1995, off 3 percent from the previous year. The number of multifamily units permitted, 7,094 in 1995, however, was up 22 percent from 1994. The median price of a home sold in 1995 was $128,400, up 9.8 percent from the median price of $116,900 in 1994. This marks the fifth consecutive year that the annual increase in median price has been in the 10-percent range. Housing affordability has been a high-profile issue in the Portland-Vancouver metropolitan region. Since 1990 the median sales price of a home has increased by 63 percent, while the median family income has risen by just 21 percent. Aggressive residential development has used up almost all of the land that is relatively cheap to develop. Mirroring the local labor market, rental housing market conditions tightened during 1995. At year's end the rental vacancy rate was 3.5 percent, down from 4 percent in 1994. New garden-style apartment complexes exceeded absorption expectations during the year, with the west Portland submarket, home of the Silicon Forest, performing particularly well. Rents moved up an average of 3 to 4 percent during 1995, or about the same rate as in 1994. According to the McGregor Millette Report, the average rent of a two-bedroom, two-bath apartment as of the Fall of 1995 was approximately $700, up $50 from a year ago. A study conducted by Ernst & Young/Kenneth Leventhal found that renting an apartment in the Portland-Vancouver area consumed 25 percent of average income. The study ranked the Portland-Vancouver area 52nd out of 72 metropolitan areas in terms of affordability, taking into account both the rental and owner-occupied segments of the housing market.